Government takes majority stake in RBS

Existing investors bought only 0.24% of the £15 billion worth of new shares on offer, the Edinburgh-based bank revealed today, forcing the government to take up the surplus, as well as £5 billion of preference shares. A stake of 57.5% is now held by the state.

The new shares were priced at 65.5p, considerably higher than the bank's 53.1p average share price this week. RBS chief executive officer Stephen Hester said: "We regret that existing shareholders did not take up their pre-emptive rights but understand that market sentiment toward the banking sector made this uneconomic in the short term."

The open offer is part of the government's plan to recapitalise UK banks, and gained overwhelming investor support from shareholders in a general meeting last week. The bank plans to repurchase the shares as soon as possible, as no dividend may be paid on ordinary shares while the government has a stake.

RBS has had a turbulent year, with stock prices plummeting from 366.77p on January 2, while third quarter writedowns of £206 million added to £5.9 billion of writedowns in the first half of the year. RBS attributed its problems to a low capital base to balance sheet ratio and its acquisition of ABN Amro, which increased its exposure to debt based on US subprime mortgage loans.

As a result, RBS has already carried out a shake-up of senior management. Former chief executive officer Sir Fred Goodwin stepped down in October, and chairman Sir Tom McKillop will retire in April 2009.

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